A failure to unite two cultures was the downfall of the promising BMW-Rover merger, writes Kumar Bhattacharyya 

Alienation killed a marriage made in heaven 

I FIRST set foot more than 20 years ago in what was then BL Cars. It was clear the company, which had been loss-making from inception, lacked the intellectual horsepower to meet the looming challenges of technological change and customer expectations. Its managers were living in a different age. Issues of competitiveness in a global, technology-rich environment were simply not part of their vocabulary. 

They seemed unaware of the quality revolution in Germany and Japan. The lack of money and the "not invented here" syndrome meant BL failed to develop the right technology and car designs. 

Margaret Thatcher saw the weaknesses and decided to sell BL to a bigger car-maker. That led to the 1985 talks to sell the cars side to Ford and Land Rover and the trucks to General Motors. 

Then came the first great missed opportunity that could have prevented today's disaster. The deals were scuppered by Midlands MPs fortified by the government's weakness following Westland. Yet their campaign to keep BL British did the company no favours. By stopping the deals, they cut BL off from the technology and design expertise it needed and could only obtain from a big group with deep pockets. 

When the dust settled, the rechristened Rover turned to Honda to stem the tide of technological redundancy. 

This was a smart move, bringing Rover much-needed platforms. But the Rover people failed to capitalise on the relationship because the company had no learning culture. It was not easy to work with the Japanese, especially because the relationship was not financially lucrative for Rover. This caused tensions, but beggars cannot be choosers. 

Rover adopted the Japanese lean production philosophy, but this did not close its design and technology gap. Because survival was at stake, the company became operationally lean. But in a competitive global environment, leanness of itself does not guarantee success. 

This focus on leanness, essentially over-compensation for lack of resources, was exacerbated during British Aerospace's ownership. BAe was crippled after its 1991 crisis and spending on Rover was pared to the bone. George Simpson, then Rover chairman, knew it needed access to know-how, products and equipment. As BAe's deputy chief executive, he also knew BAe had to find an exit from Rover, which was consuming its borrowing capacity. 

That led to Rover's last chance: its purchase by BMW. Simpson thought this a marriage made in heaven. Rover had learnt lean manufacturing experience from Honda and BMW was technologically and financially rich. 

Instead, from day one the whole thing went wrong. Initially, there were problems because of cultural differences between the British and German managers. There was arrogance on both sides. The British would not learn from the Germans, even though they had done little research and development because they had to struggle to survive each day. 

But the real problem lay at BMW, which was split between those led by Bernd Pischetsrieder, who had conceived the deal, and those who never wanted to get into bed with the British. These clashes did dreadful damage. As a result, there was a critical delay of two years in understanding the problems and the Rover mindset. Ultimately, the strife led to the situation where BMW has lost more executive directors in one year through resignation than in the previous 40. 

Instead of assimilation, there was alienation. Where this proved fatal was over the big challenge confronting BMW, the need to revive Longbridge, the biggest headache in Rover. Longbridge's product range was weak and the Rover brand had been debased by being applied across the model range to what were derivatives from Honda. What Longbridge needed was a BMW 2 Series. But because BMW was determined to keep Rover separate, it never got it. 

This was the crucial error, and it came from the failure to unite the two cultures. Thus BMW and Rover will become a classic case study of a failed merger. 

The pound has not helped, but it was not the root cause of the problems, while the government could not have done more to help the company in recent years. Germans know and appreciate Shakespeare. When the West Midlands' favourite son wrote "The fault lies not in our stars, but in ourselves", he said it all. 

Sunday Times 19 March 2000